Is Bankruptcy Really A Fresh Start?

Today, many people are in so much financial debt that it is impossible for them to pay their debt as well as the general cost of their living expenses. Many are blaming September 11th for their financial whose; however, their spending habits have always existed. Many feel like there is just not enough income coming in to support their lifestyles; jobs are being cut like never being before. Credit card companies are issuing credit cards like never before. If one is not cautious, they will have the "charge it" mentality which gets them in a financial jam further down the road. Then, when they have maxed out all of their credit cards; they are left with no other choice but to file Bankrupt. However, is bankruptcy a fresh new start?

Webster defines bankruptcy as to reduce to a state of financial ruin or utter failure or impoverishment. Bankruptcy can also be defined as a legal proceeding in which an individual cannot pay his or her bills can get a new financial start. There are four types of bankruptcy cased provided under the law.

*Chapter 7 is known as straight "bankruptcy or

liquidation."

*Chapter 11 is known as "reorganization" and is

common among businesses.

*Chapter 12 is reserved for family farmers.

*Chapter 13 is known as "debt adjustment."

Although there are four types, the most common ones are Chapter 7 and Chapter 13 which will be discussed in this paper.

In a bankruptcy case under Chapter 7, one files a petition asking the court to discharge their debt. The basic idea in Chapter 7 bankruptcy is to wipe out one's debt. It does not involve the filing of a plan of repayment. There is no property which is non exempt that one can sell to pay creditors; all unsecured creditors are paid nothing. On October 17, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 make it difficult for one to file Chapter 7 Bankruptcy. One may not file bankruptcy under Chapter 7 if they are capable of paying their creditors based on new criteria known as the means test. The means test compares one's excess monthly income and their amount of debt to determine how much they can pay their creditors. After the application of the means test, only those deemed incapable of paying their debts will be allowed to proceed with Chapter 7 bankruptcy. Those deemed capable of paying will either have to be dismissed or converted to a Chapter 13 bankruptcy.

Chapter 13 is for one with a regular income who desires to pay their debts over a period of time under the supervision of the court. Debtors are permitted to repay creditors in installments generally over a five-year period; in which, creditors are prohibited from starting or continuing collection efforts.

Bankruptcy makes it possible for one to eliminate the legal obligation to pay most or all of their debts. It also stops foreclosure on homes which allows one an opportunity to catch up on missed payments. It can also prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed. Bankruptcy can stop wage garnishment and debt collection harassment.

Bankruptcy cannot cure every financial problem. It will not eliminate certain rights of "secured" creditors. One cannot keep collateral unless they continue to pay the debt. Also, student loans, child support, alimony, court restitution orders, and criminal finals are not discharged.

It does not protect consigners on debts. When someone has cosigned a loan and the other party has discharge the loan in bankruptcy, the cosigner may still have to pay all or part of the loan.

For this paper, I interviewed one person who filed Chapter 7 and two people who filed Chapter 13. The young lady who filed Chapter 7 stated that bankruptcy was her only way out to financial relief. She said that she is now debt free and she has a job paying her $60,000 a year; therefore she does not have to charge anything. She can basically by anything she wants. She was able to even get a house after filing. The two individuals who file Chapter 13 had another take on filing bankruptcy. One lady stated that they were forced to sell their house in Missouri to pay off their debt; however, they were able to purchase a home here in Georgia. The other stated how she's been in banking prior her bankruptcy and she applied for job after the bankruptcy, but she was denied a job due to the bankruptcy; however, she was able to recover from her financial problems.

Personally, I think that each one of these individuals were able to benefit from filing bankruptcy; however, it did had a disadvantage for the two who file Chapter 13. One lost her home, but she was able to get a new home. The other just can't get a job in banking, but it did aid her through her financial struggle.

The procedure for filing bankruptcy is very detailed. One has to file a petition with the Bankruptcy Court serving the area where one lives. A husband and wife may file a joint petition. One will have to compile a list of all creditors and the amount they owe, their income, a list of all their property, and a list of their monthly expenses

such as food, clothing, shelter, utilities, taxes, transportation, etc. The 2005 Act requires the following for filing bankruptcy:

*receipt for payments received from ones employer

60 days before filing the petition.

*statement of ones monthly net income.

*statement of any anticipated increase of income

or expenses in 12 months of filing the petition.

*copy of ones most recent tax returns.

*certificate of briefing from an approved credit

counseling agency.

Under the 2005 Act, failure to file all required documents within 45 days after filing the petition will normally result in the dismissal of the case on the 46th day. In addition to administrative fees some court have, one will have to pay a filing fee of $274. Under the new law, the bankruptcy court may waive the filing fee if one's income

is below the specified levels and the